WATCH IT

The origin of your TV set is a simple lesson in the dangers of ignoring globalization

Obsession
Glass
Obsession
Glass

Donald Trump is right. The US doesn’t make TV sets anymore, and it’s mind-boggling that an industry that once supported as many as 100 American manufacturers churning out millions of devices each year went from startup to standard-bearer to extinction in 50 years’ time.

But the US president-elect is wrong when he casts the sector’s demise as a failure of globalization. US television manufacturing wasn’t killed by bad trade deals or competition from cheap labor abroad. It was done in by its own inward focus on the domestic market and its own failure to see the global opportunities at hand—and it won’t be resurrected by protectionist trade policies that encourage businesses to repeat these mistakes.

The American manufacturers’ short-lived glory days

RCA introduced Americans to television at the 1939 World’s Fair in New York. Though World War II would postpone its broad adoption, it wasn’t long before the TV set had taken over the American living room.

By the late 1950s, the US was home to an enormous new industry, and its manufacturers were understandably lured by the domestic market. As one executive at now-defunct Zenith put it, just a small increase in market share in Los Angeles might represent as much revenue as an entire country outside the US. So the focus stayed close to home.

But others saw the opportunities abroad. It was Japanese firms that started taking US technology overseas through licenses from RCA. Pretty soon, they were exporting what they learned back to the US in the shape of TV parts—and later whole TVs.

They were committed competitors. They tested meticulously to avoid quality problems. They were eager adopters of automation—while their American competitors, intent on saving jobs, were reluctant to replace workers with machines, according to Martin Kenney, a professor at the University of California, Davis, who has studied the sector. Japanese products started to get both better and cheaper than what the US produced.

In order to compete, American TV part makers started shutting down their facilities in the US and moving them abroad, setting off a decades-long period of steady job losses.

A bungled response

The US government at the time responded to the losses as Trump is proposing to do some 50 years later, with trade barriers. But the efforts ended up strengthening US competitors. In 1977, the US started restricting imports of Japanese TVs and components. That encouraged Japanese companies to move some production to the US, as intended, but it also gave a boost to Taiwanese and Korean producers by moving their biggest competitor, Japan, out of the way. When the US blocked imports from those countries as well, production moved to Southeast Asia.

In another example of protectionist policies backfiring, the US imposed high duties on television tubes, the kind of sophisticated, high-value component it wanted to keep within the country. At the same time, it set lower tariffs for assembled products than on individual components for the benefit of US manufacturers that were assembling TVs abroad. The result: US companies imported tubes from Asia to their Mexico plants, loaded them into TVs, and exported the nearly ready units to the US. Meanwhile, the American tube makers saw orders collapse.

In the end, the government’s trade-policy tinkering was overwhelmed by the economic rationale of Mexico’s lower wages and proximity to the US. American and foreign companies along the whole TV supply chain eventually migrated to Mexico. The US sector—which employed 130,000 at its peak, in 1966—employed less than 50,000 US workers by 2001. That number would keep dropping as flat-screen displays replaced tube television. Today the industry employs fewer than 20,000 Americans.

Flat panels

The color-tube TV industry was the US’s to lose, but the US never really owned the flat-screen TV industry. The inventions and discoveries that enabled it originally came from the US. But in those early days, the ultimate application for them, flat-screen TVs, was deemed to be too far off to be worth investing in by US companies, according to Stefanie Lenway, who co-authored a 2003 book examining the demise of the US’s TV industry.

The Japanese, however, had less grandiose aspirations. They started using the new flat screen technology in wristwatches and calculators. By doing so, they got a jumpstart on a technology that eventually transformed the whole TV industry. The change wasn’t solely in the way the final product looked and worked, but also in how it was conceived.

As Lenway and her co-authors argue, the flat-screen display industry thrived on the cooperation of researchers and companies from all over the world. Suppliers on one side of the planet learned from sellers in another, competitors from different countries formed alliances with each other, and bought and sold one another’s products.

Most of the learning took place in Japan, because companies there had been experimenting with the technology for longer. But it wasn’t closed off to companies from other countries. US-based Corning, for example, set up in Japan and participated in the knowledge exchange. Today, it remains a key producer of glass, among the highest-margin TV components.

That’s not the model that other US companies adopted. Together with the government, they tried to reproduce what was going on in Japan on US soil. But they couldn’t catch up because they didn’t have the same expertise. In pursuing a “Make-America-Great-Again”-like strategy, they lost sight of the “humility and openness” of the globally interdependent nature of the business that, according to Lenway and her co-authors’ analysis, were required to succeed.

One by one, American manufacturers pulled out of the business, while more sophisticated manufacturing plants kept popping up in Asia.

At this point, attempting to establish a competitive facility in the US makes no economic sense, says Alberto Moel, a Bernstein Research analyst who focuses on the industry. “The US is too far behind in the technology,” he said.

Nor does it make much sense for US companies to get into other sectors of the industry, such as TV assembly, which have very thin margins, according to Moel’s research.

Mexico’s trade balance on electronics should be another deterrent. That country, which exports millions of televisions to the US, has become a net electronics importer in recent years due to all the components it imports in order to build those sets and other appliances.

The economy of yesterday vs. the economy of tomorrow

At this point, the only thing that seems to be bolstering TV manufacturing in the US is the persistent “Made in America” obsession. Element Electronics Corp., for example, is based in Winnsboro, South Carolina, and supplies Wal-Mart under the retailing giant’s initiative to source American products. “Proudly assembled in America,” it touts on its website.

Trump’s administration could convince other companies to make TVs through political pressure and incentives, like he did with air-conditioner maker Carrier. That kind of negotiated job creation won’t go far in improving opportunities for the workers left behind by globalization, though. What they need, says Robert Salomon, a professor at New York University’s business school, is a social safety net, and new skills to qualify for the high-tech positions American companies are trying to fill these days.

“The US has to create systematic programs to retrain them for that economy of tomorrow, not yesterday,” Salomon says.

But thus far, the US has done little to address the real fallout from the borderless businesses many US companies now engage in: the tens of thousands of laid-off American workers. Meanwhile, makers of a wide range of products—the iPhone, for example—have taken lessons from the domestic TV industry’s demise, namely that knowledge, not factories on the home turf, is where the profits are.

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